Editorial
Focusing On Select Few Quality Stocks Is The Best Strategy For Now
Indian bulls continued to regulate the markets, albeit on tiptoes, amid cautiousness ahead of the US-China trade talks. The US and Asian bourses traded higher, with one more trial of negotiations between US and China after the failure of three previous rounds in May that ended bitterly. Even now, both the countries doubt any positive outcome as China indicated discussion or implementation of only two-third of the 140 demands drafted by the Donald Trump administration in the first round of the meeting. Meanwhile, the China Banking and Regulatory Commission also called for banks and financial institutions to boost lending support to infrastructure projects and exporters, which brought in some buoyancy in the Asian markets.
Investors worldwide are eyeing its impact on currencies, specifically Chinese yuan, Turkish lira and Indian rupee. The rupee is again off its low and was seen consolidating due to lack of trigger. Still, the rupee dipping below the 70-mark has raised concerns as the worst is yet not over looking at the rising deficit. With this, the country’s FY19 GDP forecast has been downgraded from 7.4% to 7.2%. Higher MSPs on kharif crops and rising fuel prices amid high crude prices would impact inflation, and thereby impact individual and government savings. Meanwhile, the country has also seen higher trade deficit exceeding the 5-year high of USD 18.2 billion in July in the wake of higher oil imports. Yet, the weakening of rupee and oil prices below their support levels would further help in curtailing imports to some extent. Moreover, the softening of metal prices too will bring in some cheer to the manufacturers in the near term. However, the exports may also get impacted with weaker growth outlook worldwide and protectionism or trade war threats from the US. We see the current account deficit too expanding in FY19 to nearly USD 76 billion.
We have few important state elections later this year, followed by the general elections early next year, on the cards. Although a BJP win in general elections is given, the opposition parties' efforts to forge an alliance against the BJP may see a drop in the number of seats for the NDA alliance. Markets may face hiccups due to the developments or news relating to the elections more than witnessing a smooth pre-election rally.
Nevertheless, the country has witnessed revival in its Q1FY19 corporate results and would continue to show profits for some more quarters, unless there is some unexpected disruption. Sensex is trading at a premium to nine emerging markets’ median P/E as against the 5-year average. But we still cannot say that the markets have topped. Indian markets have digested every possible catastrophes that have led to corrections, and the trend is bullish for now.
Thus, we maintain our view of betting on growth stocks with clean records, which would curb the downside risks. Investing in the bottomed-out companies with signs of reversals or breakouts amid good earnings reports is advisable. We do not recommend buying on dips at the moment. Instead of diversifying, we believe concentration on select few stocks would work better in the current market condition.
